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New Zealand law explained for everyone

Income Tax Act 2007

Income - Income from equity

CD 16: Certain dividends not increased by tax credits

You could also call this:

“Some dividends from unit trusts don't include tax credits”

This part of the law talks about how certain dividends work for unit trusts. When a unit trust manager buys back units from people who own them, they might get a dividend. The law says that this dividend doesn’t always include all of the tax credits that are usually attached to dividends.

If the dividend (without the tax credit) is just getting back the money the manager paid for the units, then the tax credit isn’t counted as part of the dividend. This is important for some parts of the tax law.

The law also says who counts as a unit trust manager. It can be the actual manager, someone they choose, or people who manage certain types of investment funds.

This rule helps make sure that unit trust managers aren’t taxed unfairly when they’re just doing their normal job of managing the trust.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1512574.

Topics:
Money and consumer rights > Taxes
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Part C Income
Income from equity

CD 16Certain dividends not increased by tax credits

  1. This section applies when a unit trust manager, in the ordinary course of their management activities for a unit trust,—

  2. acquires units from unit holders under the terms on which the units were offered to potential unit holders; and
    1. derives a dividend from the redemption or other cancellation of units in the unit trust.

      1. For the purposes of Parts B, C, E, and F, the dividend derived does not include an amount of imputation credit attached to it to the extent to which the dividend (exclusive of the imputation credit) recovers the price paid by the unit trust manager to acquire the units.

      2. To the extent to which subsection (2) applies, section FA 3 (Recharacterisation of certain dividends: recovery of cost of shares held on revenue account) does not apply.

      3. In this section,—

        unit trust manager includes—

        1. a person nominated by the unit trust manager; or
          1. a trustee or a manager of a group investment fund that derives category A income; or
            1. a person nominated by the trustee or the manager of the group investment fund.

            Compare
            Notes
            • Section CD 16(4) imputation credit: repealed, on , by section 18(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
            • Section CD 16 list of defined terms FDP credit: repealed, on , by section 18(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).